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First I would like to say that I still live with my parents, so my father still claims me as a dependent. I've turned 21 at the end of October and am a college student. I took this semester off, and one semester didn't have full-time status (dropped a class), so I'm not sure how that will affect me (I know there are certain provisions about college students, full-time/part-time, but I don't have all the details). I've made about $30,000 this year off Adsense.
Anyhow I have a few questions, and if anybody can answer them, or provide some good tax information links I would appreciate it.
Decembers revenue is considered earnings for 2006 as the check won't be available until after the year is over correct?
What do you do concerning Estimated Tax? The volatility of Adsense income makes me wonder how to generate this figure and whether or not to do it quarterly or yearly if I have to do it at all.
What expenses won't be deductible? Monthly fees I know are fine, but what about set up fees, or upgrade fees (I utilize a few dedicated servers, paid set up fees, and upgrades such as adding memory to the system)? Those are also deductible? And what about my Cable Internet? I use it as much for leisure as I do for business (although I've seen enough reports that employees do the same at work)
I've never had to file before. If anyone has any information that would be useful to me, I thank you in advance.
What expenses won't be deductible? Monthly fees I know are fine, but what about set up fees, or upgrade fees (I utilize a few dedicated servers, paid set up fees, and upgrades such as adding memory to the system)?
All bussiness related costs.
See my posting in the tax related thread
The basic idea of expenses is
"The company is poor, the company has to pay everything"
The trip to the IRS are business expenses.
Lead a notice book about every km with Your car.
In Austria, when the trip to the IRS is more than 25km and longer than 6 hours, You can start to deduct day costs by fixed schedule.
You will learn how much money, You invested in variouse ways in Your AdSense business, and that Your earned nearly nothing.
I just finished my tax declaration 2004.
From my total turnover, about 70% expenses, so only 30% of my turnover remained as my income.
Can't say here what it is as I don't want to be thought of as promoting something so I will just say the name starts with a T. :)
You have to calculate what percentage is personal and what percentage is business. You can only deduct the space and time that is used for business. Ideally, you should log your time on your computer used for business like you do for your car mileage to take a defendable deduction. For your cell phone, you could divide your business minutes with the total minutes used that month to calculate a percentage. Multiply that percentage with your monthly bill to arrive at the business amount you can deduct. For your computer, car, and broadband, you can log the time you use specifically for business.
This is why the advice of a veteran accountant or tax agent is extremely useful. Some are by the book while others are - errr - more aggressive with deductions. You have to align yourself with someone you feel comfortable with.
you should log your time on your computer used for business
That's impossible and sensless. Anything You do on the computer can lead to new ideas and new income.
A interior designer who is web design client of me writes of visits in art exhibitions in Venecia, because he need inspiration for his job.
Computer expenses are always 100% in Austria.
Telephon is without any disussion in a tax audit, I had 2002, 80%
Only car is carefully to document.
I started only to notice after my tax audit, but because my clients had been distributed all over Austria and Germany, 80% had been recogniced as business without documentation.
For luck, I am in Austria, same situation in Germany and 0% write off for car expenses without exact documentation.
Because no room is dedicated only for business, I was not allowed to write of part of the rent for my apartment. But 30% of the operating expenses, I can write of.
Anyway, a few tips that have helped me.
You have to make estimated tax payments and pay high if you can or you'll have penalties as well as attract extra attention. My income varies greatly so I just aim high and adjust througout the year. You are allowed to be way low the first year, but after that, you can estimate within so many percentage points of the previous year.
Use the Home Business version of the popular tax programs that connects to the popular record keeping software ending with "-----books". It handles special forms better than the plain tax version.
Do this now so you know how much money you are paying taxes on and can reduce it before December 31st. Think about putting money in advance into your PR web account, Overture or Adwords. You may use it next year, but it's an expense on this year since you "spent" it.
Use the cash basis method and your only earnings is the money you already have in hand...so your last earnings is the December 28th payment, or November earnings.
Any fees related to work is deductible. Dues, subscriptions, conferences such as Pubcon.... Buy a new computer for business and keep the old one around for "personal use."
Use high speed internet. That is business and deduct it all. Get one of those optional add-on dial up accounts for traveling, for $1-$7 a month, that you never really use. That's your personal account. If you have a cell phone and a land line, make one business and one personal. Easier to separate things in total than percentages.
Measure your work space. This measurement makes a percentage of your home. Then you can deduct that percentage of all utility bills, even trash. You can go higher if you know that you have extra usage, like extra air conditioning or power use, etc.
Open a HSA, health savings account for healthcare. It's the best thing the government has ever done and not many know about it. Pay deductible premiums, and hold onto money before taxes, in a interest earning account that you control. Max it out each year and save big. My whole family of three is covered 100% for $200 a month.
Just a few tips from ten years of self employed life.